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Top 10 investment scams

1. Unlicensed individuals, such as life insurance agents, selling securities. To verify that a person is licensed or registered to sell securities, call your state securities regulator. If the person is not registered, don't invest.

2. Affinity group fraud. Many scammers use their victim's religious or ethnic identity to gain their trust -- knowing it's human nature to trust people who are like you -- and then steal their life savings. The fraud varies from "gifting" programs at some churches to foreign exchange scams targeted at Asian Americans.

3. Payphone and ATM sales. In early March, 25 states announced actions against companies and individuals -- many of them independent life insurance agents -- that took roughly 4,500 people for $76 million selling coin-operated customer-owned telephones. Investors leased payphones for between $5,000 and $7,000 and were promised returns of up to 15 percent.

4. Promissory notes. Short-term debt instruments issued by little-known or sometimes non-existent companies that promise high returns -- upwards of 15 percent monthly -- with little or no risk.

5. Internet fraud. Scammers use the Internet to "pump and dump" thinly traded stocks, peddle bogus offshore "prime bank" investments and publicize pyramid schemes. Ignore anonymous financial advice on the Internet and in chat rooms.

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6. Ponzi/pyramid schemes. These swindles promise high returns to investors, but the only people who consistently make money are the promoters who set them in motion, using money from previous investors to pay the new investors. Inevitably, the schemes collapse.

7. Callable CDs. These higher-yielding certificates of deposit won't mature for 10 to 20 years, unless the bank, not the investor, "calls," or redeems them. Redeeming the CD early may result in large losses -- upwards of 25 percent of the original investment. Regulators say sellers of callable CDs often don't adequately disclose the risks and restrictions.

8. Viatical settlements. Originated as a way to help the gravely ill pay their bills, these interests in the death benefits of terminally ill patients are always risky and sometimes fraudulent. The insured gets a percentage of the death benefit in cash from the investor; investors get a share of the death benefit when the insured dies. Because of uncertainties predicting when someone will die, these investments are extremely speculative. In a new twist, Pennsylvania regulators say "senior settlements" -- interests in the death benefits of healthy older people -- are now being offered to investors.

9. Prime bank schemes. Scammers promise investors triple-digit returns through access to the investment portfolios of the world's elite banks. These schemes often target conspiracy theorists, promising access to the "secret" investments used by the Rothschilds or Saudi royalty.

10. Investment seminars. Often the only people getting rich are those running the seminar, making money from admission fees and the sale of books and audiotapes. These seminars are marketed through newspaper, radio and TV ads and "infomercials" on cable television. Regulators urge investors to be extremely skeptical about any get-rich-quick scheme.

Source: North American Securities Administrators Association

-- Posted: June 4, 2001

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See Also
Affinity scams
Quiz: Are you a sucker for a scam?
Top 10 small-business scams

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